20 hrs ago
Markets Expect Fed Rate Hike Despite Trump’s Lower-Rate Push
Donald Trump wants interest rates to go lower.
However, many traders now think the Federal Reserve may raise rates in September.
A tool called CME FedWatch estimated a 64% chance of a rate increase.
Higher rates are often used to help reduce inflation.
Usually, expectations of a rate hike would make people think the Fed is firmly fighting inflation.
But Knightley and others say inflation may not be the only reason long-term government bond yields are rising.
They point to other pressures in the bond market.
Treasury inflation-protected securities suggest that inflation expectations remain relatively favorable even as yields rise.
Markets are increasingly expecting the Federal Reserve to raise interest rates at its September meeting.
The CME FedWatch tool put the probability of a September rate increase at 64% on Wednesday.
Such expectations would typically suggest confidence that the Fed is focused on lowering inflation.
Knightley and others argue that inflation is not the only factor pushing up long-term government bond yields.
Break-even inflation rates from Treasury inflation-protected securities remain favorable while yields continue rising.
- Who
- Donald Trump, the Federal Reserve, market participants, and analysts including Knightley.
- What
- Markets are pricing in a possible Federal Reserve interest-rate increase despite Trump’s preference for lower rates.
- Where
- The developments concern U.S. interest-rate and government-bond markets.
- When
- The CME FedWatch probability was reported on Wednesday, ahead of the September meeting.
- Why
- Expectations of a rate hike are linked to efforts to lower inflation, while analysts say other factors may also be pushing up long-term bond yields.
Rate-Hike Interpretation
Broader Bond-Market Explanation
Why yields are rising
Rate-Hike Interpretation
The increased likelihood of a Federal Reserve rate hike could signal that policymakers are focused on reducing inflation.
Broader Bond-Market Explanation
Knightley and others argue that inflation is not the only factor driving up yields on longer-term government bonds.
Inflation expectations
Rate-Hike Interpretation
Expectations of tighter monetary policy suggest concern about inflation remains important.
Broader Bond-Market Explanation
Break-even inflation rates from Treasury inflation-protected securities are described as favorable even while yields rise.
Key facts
- Expected September rate-hike probability
- 64%, according to the CME FedWatch tool on Wednesday
- Trump’s preference
- Lower interest rates
- Central bank
- Federal Reserve
- Market measure
- CME FedWatch tool
- Bond-market trend
- Long-term government bond yields continue to rise
- Inflation measure
- Break-even inflation rates are based on Treasury inflation-protected securities
Sources
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